Can Hindustan Zinc stock price go up?

Chances of Hindustan Zinc stock price inching upwards

Introduction

In May 2020 Mining mogul Vedanta Limited announced its plans to delist from the Indian bourses to simplify company’s structure. This set the ball rolling for a compelling and convoluted corporate drama. However, in October 2020 Vedanta declared that delisting failed. This was because it was unable to garner the shares required for the delisting process to go through. In this blog, we will discuss mainly about Vedanta’s wholly owned listed subsidiary Hindustan Zinc and its growth prospects.

Hindustan Zinc Ltd Company Overview

• Vedanta Limited is a promoter of Hindustan Zinc and holds a whopping 64.92% stake in the company.
• ~22% of Hindustan Zinc revenues come from silver mining.  Silver is a byproduct of Lead production and  mining of silver is an extremely profitable venture as it has an EBITDA Margin of 95%.
• When Vedanta was attempting to go through with their delisting, Royal Gold issued a statement that they were in talks with Hindustan Zinc for a potential business deal
• Royal Gold is one of the world’s leading precious metals stream and royalty companies engaged in the acquisition and management of precious metal streams, royalties and similar production-based interests.
• It owns a large portfolio of producing, development, evaluation and exploration stage streams and royalties on properties located in some of the world’s most prolific gold regions and operated by some of the most well-known companies in the mining industry.
• But in October Royal Gold issued a correction to their earlier statement saying that – “No agreement has been reached regarding such transaction.”
• This correction was made around the same timeline when Vedanta’s delisting offer failed.
• Here’s a hypothetical  example of the potential deal-

• This potential deal will help reducing the humongous amount of debt that company has i.e ~ INR 52,500 crore.
• Hindustan Zinc’s current market capitalization stands at Rs. 94,880 Crores (i.e. 12-13 Billion USD). The analysts earlier estimated Hindustan Zinc’s  Silver Mining Business is around 2.5 Billion USD. However it has a potential to reach 6 Billion USD going forward.

Hindustan Zinc Financial Highlights

• Q2FY21 results of Hindustan Zinc show that their Revenue and EBITDA have grown by 25% and 39% respectively on YoY basis to Rs. 5,660 Crores and Rs. 2,950 Crores.
• While their Silver Segment has outperformed exceptionally, contributing to 22% of revenues. It also furnishing  46% of operating income/EBITDA up from 32% last quarter. This stellar performance was driven by a 51% spike in volume and a 42% rise in price of silver.
• This is contributing to the profitability of the company and has resulted in re-rating of the stock price by 9% from INR 200 to INR 217. There is still an upside of ~Rs.60- Rs. 70 in the stock price.

Conclusion

Although the company has good future prospects and chances of stock price going up, this should not be a motive for long term investors to invest in this company. This is mainly because of corporate governance issues in its parent company – Vedanta Limited.